Global alternative assets predicted to reach $15.3 trillion in 2020

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A report just published by PwC predicts global alternative assets will increase to US$ 15.3tn by 2020. In the lead up to it, the global alternative asset management industry is expected to experience a period of transformation as players calibrate their business and operations and make technology a top investment priority.

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29/06/2015 | Publication
  • Annual Review 2014

According to the report, ‘Alternative Asset Management in 2020: Fast Forward to Centre Stage’, the rapid developments in the global economic environment have pushed asset management to the forefront of social economic change. As a result, the need for sustainable long-term investment returns has propelled the alternative asset classes to centre stage.

The principal focus for many firms will shift to creating a broader asset class and product mix and accessing new distribution channels.

While some firms still strive to become more institutionalised, the leading players will work to build industrial-strength operational platforms. They will meet this challenge by revamping their business and infrastructure to be more agile, durable and scalable, with a high degree of efficiency and operating leverage.

Assets under management in South America, Asia, Africa and the Middle East (SAAAME) are set to grow faster than the developed world. According to PwC, this growth will be exemplified by the growth of sovereign assets and the projected emergence of new Sovereign Investors, the vast majority of which will originate from SAAAME.

Fanny Sergent, partner and Hedge Funds Leader at PwC Luxembourg, commented:

“The shift in global economic power from developed to developing regions will drive continued focus on sovereign investors, fast-growing institutions and the emerging middle classes in new markets. These groups of investors will increasingly seek branded multi-capability firms. Currently, a number of alternative firms exist in this category. Others will aspire to join them.”

The largest increases in allocations will likely be in private equity, real estate and infrastructure.

Vincent Lebrun, partner and Private Equity Leader at PwC Luxembourg, said:

"Private equity allocations by 2020 are expected to increase to 38% of alternative portfolios, from 36% in 2015."

And Amaury Evrard, partner and Real Estate Leader at PwC Luxembourg, added:

"Real estate is expected to increase to 41% of alternative portfolios, from 38% in 2015."

PwC predicts that in response to this growth, alternative firms and the traditional firms looking to enter the alternatives sector will pursue one or more of three possible growth strategies; building, buying or borrowing expertise that they do not currently have in-house. The builders will look inwardly for growth, leveraging their existing capabilities and talent while the buyers will look to acquire talent, track record and scale overnight. The borrowers will achieve their growth strategy by ‘partnering’ with other financial institutions to expand their capabilities and distribution channels.

The report predicts alternative managers will develop more sophisticated market strategies, more focused distribution channels and better recognised brands. Many firms will devote more resources to deciding which investor channels they want to play in, how profitable each of those channels are and how to optimise their chosen channels.

PwC expects alternative asset managers to continue to move into areas traditionally dominated by banks, such as lending, securitisation and financing as the funding gap continues to present considerable new opportunities to them. Others will create partnerships with banks and the largest institutional investors, providing integrated expertise in managing new asset classes and building customised products. At the same time, they will respond to the demand from investors for standardised products in the form of liquid alternatives and other permanent capital vehicles. 

Historically, investment in technology has not been a top priority for many alternative firms. However, all this will change. The next five years will see it become mission critical in driving investor engagement, data-informed decision making, operational and cost efficiency as well as regulatory and tax reporting. According to PwC, by 2020, the shift to data-informed decision-making will lead to improved organisational designs that can make more effective use of third-party administrators, other business process outsourcing firms, and other vendors to achieve operational and cost efficiency.

Most firms will recognise that success in generating alpha – measuring performance on a risk-adjusted basis, does not on its own guarantee success as an organisation. Those managers who are looking not just for growth but for sustainable growth, will develop their infrastructure, have a clear strategy and create robust organisational structures to exploit the opportunities that will emerge in the coming years. While they will still manage highly disparate strategies that leverage unique skillsets, operationally they will start to look more homogenous as a group as they seek to create ‘industrial strength’ in their operations and processes. Durability and profitability will be essential credentials for any alternative firm which has ambitions to follow – or lead - the industry to the centre stage of the investment landscape.

The report ‘Alternative Asset Management in 2020: Fast Forward to Centre Stage’ can be downloaded on PwC Luxembourg website.

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